Apart from the deferences in mode of computation and tax liability, the LTCG is eligible for certain deductions. These dedications are available in the following circumstances

a)	The LTCG is arising due to sale of a residential unit and investment is made in a new residential unit;
b)	The LTCG is arising due to sale of an agricultural land and investment is made in a new agricultural land
c)	The LTCG is arising on compulsory acquisition of lands and buildings of an industrial undertaking and investment is made for purchase of land or building to shift or re-establish the industrial undertaking;
d)	The LTCG is arising from transfer of machinery or plant or building or land of an industrial undertaking situated in an urban area and an investment is made on machinery or plant or building or land for the if purpose of shifting the industrial undertaking to any area other than urban area;
e)	The LTCG is arising on sale of asset other than a residential unit and investment is made in a residential unit;
f)	Investment in financial assets.
g)	Investment in equity shares.

  

a) Transfer of a residential house and investment in residential house

If an individual or HUF having LTCG from transfer of a residential unit makes investment to purchase or construct a residential unit, the amount invested in the new residential unit is allowed as a deduction from the LTCG. The new residential unit can be constructed within 3 years from the date of transfer or can be purchased one year before or two years after the date of transfer.

To claim this deduction, the assessee, after taking into consideration the amount that he has already invested for construction or purchase of the new residential unit upto the due date of filing of return of income in his case, should deposit the remaining amount which he intends to use for purchasing or constructing the new residential unit in a Capital Gains Deposit Account on or before the due date for filing of the return and enclose proof of investment in construction or purchase and proof of making such deposit into the capital gains deposit account along with the return of income. Based on this he would be allowed the deduction from the LTCG for that assessment year.

The amount which is deposited in the Capital Gains Deposit Account has to be utilised by him within two/three years from the date of transfer for the purpose of purchase/ construction of the new residential unit. In case he fails to utilise this amount either wholly or partly for the above purpose within this period the amount remaining unutilised would be taxed as Capital Gains in the year in which the above mentioned period is over.

The cost of the new residential unit purchase/ constructed would be reduced by the deduction allowed LTCG for  a period of 3 years from its  date of purchase/construction

To illustrate,

Let us continue with the example in Chapter II. In the case of LTCG the assessee has an option to purchase house either one year prior or two years after 12.3.2001, or construct a house within 3 years from 12.3.2001.

Considering 30^th June 2001 as the due date for filing of return  in  his  case,   and  that  he  has  invested  in Instruction of a new house Rs. 2,71,037/- upto that date, claim deduction for entire LTCG, he should deposit 15,00,000/- (Rs. 17,71,037 - Rs. 2,71,037) in a Capital gains Deposit Account on or before 30th June, 2001. If, of this amount, he utilises only Rs.  12,00,000/- for constructing  the   house   by   12.3.2004,   Rs.   3,00,000/- 15,00,000 - Rs. 12,00,000) would be taxed as Capital Gains for the assessment year 2004-2005.

The cost of acquisition of the new house would be as nil till 3 years from the date of its completion.

b) Transfer of Agricultural lands

If LTCG is arising from transfer of land which is used by the assessee or his parent for agricultural purposes for at least 2 years prior to the date of transfer, then the assessee can invest in purchasing any other land being used for the purpose of agriculture within 2 years the date of transfer of the original agricultural land and the amount invested by him for purchase of a new agricultural land would be allowed as a deduction from the LTCG

All the conditions and details applicable to sale of residenitial unit and investment in residential unit are applicable in this case also with suitable modifications for relevant dates or periods.

c) Compulsory Acquisition of Land and Buildings of Industrial Undertakings

This deduction is available to all categories of tax payers. The conditions for claiming this deduction are as under:

the asset transferred is land or building or any right in land or building which formed part of new industrial undertaking belonging to the tax payer.

(ii)	asset in question is transferred by way of compulsory acquisition under any law.
(iii)	the asset in question was used for the purpose of industrial undertaking at least for two years immediately before the date of compulsory acquisition.

The deduction is available if within 3 years of the date of compulsory acquisition, the taxpayer for the purposes of shifting or re-establishing the old industrial undertaking or setting up a new industrial undertaking.

(a)	purchases any other land, building or any right in any other land or building, or
(b)	constructs any other building

Deduction from the LTCG is given to the extent of above investment.

If the new asset is not acquired by the due date for furnishing the return of income for the relevant assessment year, the unutilised amount of capital gains must be deposited in a Capital Gains Deposit Account.

The cost of acquisition of the new asset is reduced by the deduction allowed from LTCG for a period of 3 years from its date of acquisition.

d) Transfer of fixed asset of industrial undertaking effected to shift it from urban area

The deduction is available to all categories of tax payers. The conditions for claiming the deduction are as under:

(i)	the transfer is effected in the course of or inconsequence of shifting the undertaking from an urban area to any area other than an urban area.
(ii)	asset transferred is machinery, plant, building, land or any right in building or land used for the business of industrial undertaking in an urban area.
(iii)	the capital gain is utilised within one year before or 3 years after the date of transfer
	(a) for purchasing new machinery or plant or building or land for tax payer's business in that new area; or (b) shifting of the old undertaking and its establishment to the new area; or (c) incurring of expenditure on such other purposes as specified in the scheme notified for the purpose.

Deduction from LTCG is given to the extent of the outlay for aforesaid asset and activities.

The unutilised amount of capital gain as on the date on which return of income for the relevant Assessment Year is due; must be deposited in a Capital Gains Deposit account.

The cost of acquisition of the new asset is reduced by the deduction allowed from LTCG for a period of 3 years from its date of acquisition.

e) Investment into a residential house

If an individual or a HUF having LTCG arising out of sale of capital asset other than a residential house invests in the purchase or construction of a residential house, then, he/it is eligible for a deduction of:

where net consideration = full value of consideration - cost of transfer.

The time available for investment and the method to be followed for investment after the due date for filing of return of income are the same as mentioned in the scheme in (a) above.

In this case, however, cost of the new asset is not changed. But the assessee should not own more than one residential house other than the residential house in which he has invested as on the date of transfer and also, he should not purchase/construct any other residential house for a period of 1/3 years from the date of transfer. In case he owns more than one residential house as on the date of transfer he is not eligible for this deduction. In case he purchases/constructs a house within 1/3 years from the date of transfer after getting this deduction, the amount allowed as deduction would be taxed as capital gains in the year of such purchase/construction.

f) Investment in financial assets

If an assessee having LTCG invests in any of the following the amount invested is eligible for deduction up to a maximum of the LTCG.

(a)	bonds redeemable after three years issued on or after 1.4.2000   by National Bank for Agricultural and Rural Development   (NBARD)   or   by   National   Highway Authority of India (NHAI).
(b)	bonds redeemable after three years issued on or after 1.4.2001   by Rural Electrification Corporation Limited (RECL)

The investment is to be made within six months from the date of transfer of the original capital asset. The bonds should not be transferred or converted into money for a period of three years from the date of acquisition. In case the bonds are transferred within 3 years from the date of their acquisition, the deduction allowed for investment earlier would be taxed in the year of such transfer as capital gains. For this purpose it would be considered as transfer even if the assessee takes any loan or advance on the security of the specified securities. For the investment in the bonds rebate u/s 88 will not be available.

g) Investment in equity shares

If an assessee has LTCG from transfer of listed securities (securities as defined in Securities, Contracts (Regulation) Act and listed in any recognised Stock Exchange in India) or unit and invests in acquiring equity shares satisfying the following conditions, the amount invested is eligible for deduction up to a maximum of the LTCG.

The investment has to be made within six months from the date of the transfer of the listed security or unit.

The equity shares should not be sold or otherwise transferred within a period of one year from the date of their acquisition. In case they are transferred within one year the deduction allowed in investment would be taxed in the year of such transfer as LTCG.

For the investment in the equity shares rebate u/s 88 will not be available.